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Optimal Public Debts, Sustainable Deficits, and Budgetary Consolidation

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Abstract

It is hardly surprising that government budgets have always been widely debated inboth the political and academic arenas as public finances in general, and the budgetin particular, reflect the political and ideological colour of the government whichruns the state. No less inevitable are academic debates on budgetary issues giventhat economics is a multi-paradigmatic science. This background makes all the moremysterious the current complete consensus on the need for budgetary consolidationand the overwhelming acceptance of the `balanced budget' principle in politics as wellas in academic economics. In the paper, this position is questioned by producing a simple model of optimal public debt, sustainable deficits and optimal budgetary consolidation. Different possible trajectories of fiscal restriction and expansion – based on a Post-Keynesian and Rational Expectations paradigm alternatively – are then being empirically tested by comparing the German and British historical accounts of public finances over the past three decades.

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  1. Hamburg University of Economics and Political Science, Von-Melle-Park 9, 20146, Hamburg, Germany

    Arne Heise

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Heise, A. Optimal Public Debts, Sustainable Deficits, and Budgetary Consolidation. Empirica 29, 319–337 (2002). https://doi.org/10.1023/A:1020803405156

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